Q - What proportion of net income should I spend on my mortgage?
I'm interested to know what the recommendations are regarding what proportion of our net monthly income should be going on mortgage payments. We're currently on a relatively low rate (2.5%), but we are looking to move and increase the size of the mortgage.
Based on the amount we're looking to borrow, I've calculated monthly repayments at 5% to make sure they're still affordable, as interest rates can really only go in one direction now, but not sure if I'm still being over-cautious??
A There's nothing wrong with being over-cautious. Making sure that you'll be able to afford your mortgage if interest rates rise is precisely what the Financial Services Authority (FSA) would like lenders to do when assessing mortgage affordability. The FSA is worried that current low mortgage rates are disguising the full impact of unaffordable lending and the true extent of consumers' vulnerability to a rise in interest rates.
As to what proportion of your income should go on mortgage payments, there seems to be a general view that if you spend more than half your income on servicing debt of all types – not just mortgage – you are potentially heading for issues down the line. Some experts suggest that the total amount you pay towards your mortgage should not exceed 28% of your gross (rather than net) income. And you should make sure that you don't go over 36% of gross income for the total amount you spend on all borrowing, including mortgage.
Q - How much money do I need to buy using Help to Buy?
A Buying a home is an expensive business, and for most of us, is the single biggest transaction of our lives, eating up most of our life savings. Below is an illustration taking a closer look at all the costs that could arise, when buying your first home using the current Help to Buy Equity Scheme.
Help to Buy (London) Illustration
Property value: £600,000
Help to buy equity loan: £240,000 (40%)
Mortgage size: £330,000 (with 40% equity loan)
Annual household income needed: £73,333
Upfront Costs
5% deposit: £30,000
Professional fees: £2,000 (Solicitor, broker etc)
Stamp duty: £5,000
Total upfront cost: £37,000
Q Will an agreement in principle affect my credit score?
A A credit score is a tool used by lenders to help determine whether you qualify for a mortgage. Using the information on your credit report and the information you supply for your application, the lenders use a model to calculate a score that represents your credit history. If you have multiple credit checks carried out over a short period of time, it can affect your credit score rating.
A Mortgage Adviser will discuss your circumstances and carry out affordability calculations before carrying out an Agreement in Principle so that you do not have multiple checks which could possibly prejudice your credit score. You will always be asked for your permission before a credit check is carried out with a mortgage lender.
Q - Is buying a new build a good investment?
A - There are many factors to consider when considering if you should buy a new build or not. From price and risk, to styling and potential appreciation. The first thing to consider is that asking ‘is a new build a good buy?’ could be the wrong question. Instead, consider asking ‘Is a new build right for me?’
Below, we have compiled a list of all the benefits of buying new, taken from a previous blog that we featured.
NEW HOMES Advantages
Chain Free
Long Leases
Buyer Incentives
10 Year Warranty
Cheaper to Run
Flexibility
Incentives
For our full blog on New Build vs Period Properties, click here
Q - HOW LONG SHOULD A LEASE BE?
Your lease is a legal document, which will tell you how long you’re allowed to live in the building, as well as what you need to pay towards insurance and upkeep (Service Charge). When first drawn up, residential leases usually last for up to 125 years, but they are often longer when buying a New Home.
As a general rule, the longer left on the lease the better, as properties with short leases can be difficult to sell. For instance, a lease with fewer than 80 years remaining can affect both the value of the property, and the amount it will cost to extend the lease. Many mortgage providers will not lend on a property with fewer than 70 years left. When buying a leasehold property, check how many years are currently left on the lease, and estimate how many will likely remain by the time you come to sell.
A major advantage of having a long lease over owning the freehold, is that the freeholder is responsible for buildings insurance and running the building to keep it in good order, and not the leaseholder. The freeholder should consult with its leaseholders on certain maintenance costs and some charges which can be challenged if deemed unreasonable. New builds come with a 10 year building warranty which covers any major building issues by way of insurance.
We hope you found this blog useful. If you have any questions which you’d like featured in our next FAQ, please comment below or DM us directly. We’d love to hear from you!
Chameleon Group offers buyers access to new developments before they reach the high street agents, or even Rightmove or Zoopla. We empower our buyers to make smart buying decision earlier in the construction cycle of brand new developments.
For updates and notifications on new homes coming up in your area sign-up to our notifications today, or check out our new homes. Or speak to our Help to Buy mortgage expert.
